You receive a letter in the mail, a letter with the heartbreaking acronym: LHDN (The Inland Revenue Board of Malaysia).
“But I paid all my taxes and I deposited on time!” you exclaim. This may be the case, but unfortunately this does not mean that you will not be audited.
If you happen to be one of the “lucky ones” that the LHIN selects for further review, you will want to know how to prepare and how to manage the process. To do this, you must first understand the following:
What is a tax audit?
A tax audit is a review of an income tax return by the LHIN to verify the accuracy of your income and deductions.
There are two types of tax controls: documentary control and field control.
A office audit involves simpler issues or tax adjustments that can be addressed by correspondence at the LHIN office. This usually involves verifying all information about income and expenses, as well as the different types of claims made by a taxpayer in his tax returns.
A field audit is more complicated. It generally takes place on the premises of a taxpayer and involves the examination of all of the taxpayer’s business records through an agent or tax agent. If a field audit is required, you will receive a letter informing you of the visit at least 14 days in advance – if the LHIN requires shorter notice, it can be arranged with your consent.
In the case of a sole proprietorship or partnership, if the taxpayer’s business records are incomplete, this may involve the review of non-business records such as personal bank statements and other assets. A taxpayer will be notified prior to a field audit.
The time required to conduct an on-site examination can range from one to three days. However, the audit deadline can be extended depending on the size of the company and the complexity of the business transactions.
Both types of audit aim to encourage voluntary compliance with tax laws and regulations and to guarantee a higher tax compliance rate as part of the self-assessment system.
Why was I selected for an audit?
The basis for the selection of audit cases includes the following:
- Thanks to the IT system based on risk analysis criteria
- Information received from a third party or third party
- Based on a specific category of industries
- According to specific problems affecting a certain group of taxpayers or according to specific problems linked to a geographical situation.
What should I do?
The first thing to do is to keep calm and let the listener do their work. Depending on the reason and the rationale for the verification, the taxpayer will be required to provide relevant information regarding the issue in question.
If tax adjustments are to be made, the taxpayer will receive a notification containing details of the proposed tax adjustments and the rationale for those adjustments.
The taxpayer will be allowed to express his point of view on the proposed tax conclusions or adjustments. If they wish to file an objection, they must do so within 18 days of the notification. Additional information and copies of the evidence should be provided to support this objection.
This is why we must always keep our files such as receipts and invoices for seven years, because the LHIN has the right to check your tax file for seven years.
If no objection is made within 18 days or if an objection proves to be unfounded, the taxpayer will be deemed to have accepted the proposed tax adjustments and will have to take measures accordingly.
During an audit, a taxpayer can request that his tax agent be present during an interview. A taxpayer who does not know Bahasa Malaysia or English is allowed to hire an interpreter.
If a taxpayer appoints a new tax agent to process their audit file, they must submit a copy of the letter of appointment.
What should I not do?
First, do not hinder or prevent the auditor from performing his or her duties. Failure to cooperate with an auditor is an offense.
Obstacles include the refusal of an audit officer to enter land, buildings, places and premises to carry out their duties.
The intentional refusal or postponement of the provision of relevant books of account or other documents required by the audit agent, or the failure to provide reasonable answers to questions asked or assistance to the agent in carrying out of his duties could also drag you into a hot soup.
Taxpayers are also prohibited from giving any form of gifts and doing business with the audit agent during the audit process.
If you can prove that your initial return was complete and correct, you will no longer be questioned. But if they find errors or false intentional statements in your documents, you will either be fined or sentenced to imprisonment, or both, depending on the severity or number of offenses:
|Failure to provide a tax return form||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
|Failure to give notice of tax change||RM200 to M20,000 or imprisonment (not exceeding six months) or both|
|Make an incorrect tax return by omitting or underestimating any income||1,000 to 10,000 RM and 200% less tax|
|Giving incorrect information on matters affecting the tax liability of a taxpayer or any other person||1,000 to 10,000 RM and 200% less tax|
|Deliberately and intentionally evading or helping any other person to escape tax||1,000 to 20,000 RM or a prison sentence (not exceeding three years) or both and 300% of the tax not collected|
|Help or advise others to under-report their income||2,000 to 20,000 RM or imprisonment (not exceeding three years) or both|
|Attempt to leave the country without paying tax||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
|Obstruction of any authorized IRBM official in the exercise of their functions||1,000 to 10,000 RM or imprisonment (not exceeding one year) or both|
|Failure to comply with appropriate record-keeping and documentation order||RM300 to RM10,000 or imprisonment (not exceeding one year) or both|
|Failure to comply with a notice requesting certain information as required by the IRBM||RM200 to RM20,000 or imprisonment or (not more than six months) both|
|Failure to notify address changes within three months||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
To avoid trouble, taxpayers are required to keep all sources of records, documents and worksheets for seven years (calculated from the end of the year in which the tax return form is filed) as proof and reference if an audit requires it.
For more information on the tax audit process, you can consult the 2020 Tax Investigation Framework.
You can run but you can’t hide
We often hear stories of people who have successfully evaded taxes for years, but it is only a matter of time before the authorities catch up and force these fraudsters to face the music.
To avoid the financial and legal implications, it is important that all taxpayers ensure that their taxes are paid on time and accurately. No one likes to file tax returns, but a little planning can make the process a lot less “fiscal”.
This article was first published in 2015 and has been updated for freshness, accuracy and completeness.
Our sincere thanks to